New GST rule 86B, Restriction on ITC Availment

New GST rule 86B, Restriction on ITC Availment

It is mandatory now to pay 1% of total Output liability in Cash

CBIC has announced major changes in GST As per New Notification Number, 94/2020-Central Tax, dated 22nd December 2020.

Read here the major changes in GST-


Availing ITC as per rule 86B

As per New Notification Number, 94/2020-Central Tax, dated 22nd December 2020, GST rule 86B has been made in the CGST Rules, 2017 which has imposed 99% restrictions on Input Tax Credit (ITC) available in electronic credit ledger of Registered Person. This means 1% of Total Output liability is to be paid in cash, where the value of taxable supply other than exempted supply and zero-rated supply in a month exceeds Rs. 50 lakh.

Rule 86B also restricts the use of amount available in electronic credit ledger. This means the taxpayer shall not use the amount which is available in electronic credit ledger to discharge the liability towards output tax in excess of 99% of total tax liability. There are few exceptions provided to this rule which are as follows-

  • Where the taxpayer in 2 preceding financial year, has paid Income Tax exceeding 1 lakh
  • Taxpayer has received refund exceeding 1 lakh u/s 54 of CGST Act 2017.
  • Where taxpayer pays the liability on outward supplies using electronic cash ledger, which aggregately makes 1% of the total liability up to the said month.
  • If a registered person is a Government Department, Public Sector Undertakings (PSUs), local authority or a statutory body.


  • New Rule 86B will be applicable w.e.f. 1st January 2021.
  • Taxpayer restricted to avail ITC as per Rule 86B shall not be permitted to file GSTR 1 where GSTR 3b has not been filed for the preceding tax period.


ITC Claim as per Rule 36(4)

ITC Claim in respect of invoices not provided by the corresponding vendors has now been restricted to 5% of the Input Tax credit (ITC) available in GSTR 2A. This limit earlier was 10% of ITC available. Any claim exceeding the prescribed limit shall result in violation of CGST Act read with rules which may result into suspension of GSTIN. The provision shall come into effect from 1st January 2021.

Read Input Tax Credit (ITC)in detail


GSTR 1 is to be blocked in case of non-filing of two GSTR 3B

Where a taxpayer fails to file GSTR 3B for two consecutive months, GSTR 1 of taxpayer shall now be blocked. Earlier non filing of GSTR 3B used to result in blocking of E-way Bill facility but from now onwards, it shall also result in blocking of GSTR 1 of the taxpayer. Also applicable for quarterly return taxpayers, those taxpayer who fails to file GSTR 3B for the preceding quarter shall not be entitle to file GSTR 1 of subsequent quarter.


Increase in GST Registration time limit

The time limit for system based GST registration has been enhanced from 3 days to 7 days. Now department shall require to review and grant GST registration within 7 days instead of 3 days as provided earlier from the date of filing GST registration application.

Cases where applicant does not do Aadhaar verification or where department feels to carry out physical verification, then the time limit shall be 30 days instead of 7 days.


More powers to department for cancellation of GSTIN

The officer can take actions for cancellation of GSTIN where ITC availed by the taxpayer exceeds the limit as prescribed in section 16 of CGST Act, 2017. Clause (e) in Rule 21 of CGST Rules, 2017 has been inserted.


GST Registration of taxpayer’s can be cancelled without being heard

From now onwards, no opportunity shall be given to taxpayer of being heard for suspension of GSTIN. If Proper Officer (PO) have reasons to believe that the registration of person is liable to be cancelled, then without being heard registration of taxpayer shall be cancelled.


Taxable value and Tax both shall coincide between GSTR 1 and GSTR 3B

If in GSTR 3B, the liability declared is less than that declared in GSTR 1 in any particular month, then department may now take actions with cancellation of GSTIN. Some practical difficulties might be there in implementing such provisions as several number of corrections are made in GSTR 3B which may result in lower tax liability as compared with GSTR 1. The new clause (f) is inserted which shows details of outward supply to understand that Taxable value and tax both shall coincide between GSTR 1 and GSTR 3B.



If there is alteration between details of outward supply of GSTR 3B and GSTR1 or details of inward supplies between GSTR 3B and GSTR 2B which indicates violation of Act. So, GST department shall now provide a notice in FORM GST REG 31 to have explanation as to why GSTIN should not be cancelled. Taxpayer shall be required to submit the reply within 30 days of such notice being provided to him.


No refund

No refund u/s 54 of CGST Act 2017 can be availed by the taxpayer if GSTIN is suspended. This means before applying refund GSTIN Suspension proceedings have to be closed.


Validity of E-way bills

Earlier distance covered up to 100 km per day was permitted under e-way bill provision. Now the same has been increased up to 200 km per day

In case of any query, seek assistance from the Team of Manthan Experts for immediate assistance.

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Knowledge Source:

Tax Invoice Under GST (Goods & Service Tax)

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